In principle, a credit for VAT incurred in the course of business, except for VAT on tax exempt supplies, is given against the output tax due to the authorities.

No deduction is allowed for input VAT incurred on the purchase of goods and services used for:

• the reception of guests; or
• the provision of meals or accommodation for employees (except input VAT on accommodation services used during business trips by employees).

There are no restrictions on deducting the input VAT incurred in relation to the purchase and use of company (passenger) cars and gasoline. However, the private use of the company (passenger) car is treated as a self-supply, on which, generally, the company has to pay VAT on a monthly basis in the fixed amount of EUR 43 (in addition to fringe benefit taxes), regardless of the age or the model of the car.

Source: PricewaterhouseCoopers - Guide to doing business and investing in Estonia